Introduction Chapter 1 Flashcards
Foundation of economics?
Scarcity of resources and multiplicity of wants.
Earliest definition of economy ?
Household management. (managing house with limited resources). Plato coined and defined economics.
Similarity between economics and management.
Both are social sciences.
Four definition of Economics?
Adam Smith’s Definition
Marshall’s Definition
Robbins’s Def
Modern Def
Who is the father of Economics?
Adam Smith
Book published by Adam Smith (father of Economics)
An Enquiry into the Nature and Causes of Wealth of Nations. 1776.
Why is Adam smiths definition of Economics called Wealth definition? (Classical Definition)
According to Adam Smith economics is the study of how wealth is produced and distributed.
Why is Alfred Marshall’s definition of Economics called the welfare definiton?
Marshall focused on human welfare rather than wealth. Wealth is just a mean to end, the end being human welfare.
According to Marshall economics studies both wealth and man.
Alfred Marshalls definiton of Economics?
Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being.
Why is Robbins’s definition called Scarcity definition?
Human wants (sometimes called ends) are unlimited however the resource to satisfy these wants are limited or have alternative (sometimes important) uses. This is why it is called the scarcity definition.
Why is economics called science of choice?
Economics teaches us to appropriately use limited resources to satisfy unlimited wants hence it is described as a science of choice.
Robbins definiton of economics/ Scarcity definiton/ Science of Choice?
Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.
According to Robbins theory what is the root of all economic problems?
Scarcity.
Who proposed Mordern defintion of Economics? Also called the Growth definition?
PROF. Samuelson
What is the Lord Keynes (CAINES) definition of Economics?
The study of administration of scarce resources and the determination of income and employment.
What is prof.Samuelson’s def of economics? Main Def
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people for satisfying their wants.
Branches of Economics?
Micro and Macro. (By Ragnar Frisch (pronounced Frish) )
What is Macro Economics?
It is known as the THEORY OF INCOME AND EMPLOYMENT. It takes the economy of a country as a whole. (macro means large. Derived from greek word makros).
What is micro economics?
IT IS KNOWN AS THE THORY OF FIRM/ PRICE THORY. A small part (unit) of a whole economy is analysed. Which usually includes individulals, firm or a consumer.
Difference between Micro and Macro read page 9
page 9
Why was managerial economics created?
To alleviate the risks involved in decision making.
Father of Managerial Economics
Joel Dean
Joel Deans Definition of Managerial Economics?
Managerial Economics is the use of economic analysis in the formulation of business policies.
Howard and Pun-Lee Lams definition of Man Eco?
The application of economic analysis to business problems.
Spencer and siegelman def of man eco ?
Managerial economics is the integration of economic theory with business practice for the purpose of decision making and forward planning by management.
Dominick Salvatore def of man eco?
Managerial economics is the application of economic theories and tools of analysis of decision science to examine how an organisation achieves its aims or objectives most efficiently.
Different names of Man Eco?
Business economics, Economics of a firm, applied economics.
Characteristics of Mangerial Economics? 9
Micro Economics: It is MICRO ECONOMIC in character because it studies the problems of business units
Normative science: It seeks what is good and bad. It is concerned with what management must do under particular circumstance. It determines and achieve those goals
Pragmatic: real life practical application oriented
Prescriptive: Prescribes solutions rather than being descriptive.
Uses Macro Economics: It helps solve problems looking at the picture as a whole.
Uses theory of firm: Uses economic concepts
Management oriented
Multi-disciplinary
Art as well as science
How does Man Eco use macro economics?
Managers analyse market conditions, economic reforms, government policies to understand its effects on the organisation
What is scope?
The area of study or width and depth of a subject.
What is the demand theory?
The demand theory explains the consumer behaviour and future demands for business planning.
Some of the concepts under managerial economics? (scope)
Demand Analysis and forecasting. (demand theory)
Cost and Production Analysis. (production theory)
Pricing policies
Study of market ( nature and degree of competition )
profit management (profit theory)
Capital budgeting. (management of Capital)
Inventory Management
Business cycle.
Strategic planning
What is theory of production?
Production theory in economics refers to how businesses decide the quantities of outputs to produce in response to demand.
What is Cost analysis used for?
Profit planning
cost control
appropriate pricing practices
What is profit theory for?
It is to guide the measurement and management of profit.
What is ABC analysis?
It is a inventory management model to minimise inventory cost.
What are the business cycles of a country?
Depression recovery prosperity boom and recession.
Difference between Economics and Mangerial Economics?
Page 13
Objectives of managerial economics ?
Integrate economic theory with business practice
To employ economic principles to solve business problems
To allocate scarce resources in optimal manner.
Minimize risk and uncertainty.
Help in demand and sales forecasting
Help in operation of firm by using managerial functions.
formulating business policies.
Profit maximization
Uses of MAN ECO? (importance)
It provides tools and techniques for managerial decisions
It gives answers to basic problems of business management.
Estimate various economic variables
Tools for demand forecasting and profit planning
Formulation of business policies (Foundation of business policies)
Helps in deciding optimum quantity of output, cost price and profit.
Helps provide strategies for solving business problems
Help identify internal and external factors that affect business,
What is micro economics alternatively called as?
Microeconomic theory
Relation b/w micro economics and managerial economics?
It can aid in decision making by using demand and cost analysis . Managerial economics is a branch of Micro Economics. Managerial economics uses microeconomic theories such elasticity of demand, marginal analysis market structures, demand and cost analysis for the formulation of business policies. Man ECO is more micro dependant than macro
Relation b/w macro economics and managerial economics?
Managerial economics uses important macro economic concepts of business cycle, national income, employment , investment etc which allows for production planning and forecasting to improve the quality of decision making.
Most widely used model for product forecasting?
Gross national product model. (macro economics)
Relation b/w statistics and managerial economics?
You know this dude. prediction by using stuff from the past trend and shit.
What is operations Research?
The use of mathematics and statistics to solve business problems is called operations research.
Relationship of managerial economics with operations research?
Operations research helps in learning inter-relationship of various business aspects (sales, products…). Then use linear programming, techniques of inventory control, and game theory to find optimum combination of various factors to achieve the objectives of maximisation of profit, minimsation of cost and time of a business.
Difference between Micro and Macro economics?
Micro
1)It studies individual economic units
2)It deals with determination of price and output in the individual market
3) It helps individual consumer or firm have optimal situation
4) focus on price
5) Not important in policy formulation at national level
6) It aims at efficient allocation and use of resources.
Macro
1) It studies aggerate economic units
2)It deals with determination of price and output in the individual market
3) It helps the entire economy to achieve optimum situation
4) Focus is on income
5)Helpful in policy formulation at national level.
6) aims at fuller employment of resources
Relationship between managerial economics and accountancy?
A business manager needs market information, production information and accounting information for decision making. The profit and loss statements reflect operational efficiency of a firm.
What is principle of opportunity cost?
Resources are scarce therefore opportunity cost is the cost of the next best alternative which is given up. They are measured by the sacrifices made in the decision.
Principle of opportunity cost alternative names?
Alternative cost / transfer cost
If a machine has only one function does it have opportunity cost?
It does not have opportunity cost
Principle of incrementalism ?
It is referred to estimating the impact of decision alternatives (the impact each decisions make). Two important concepts are incremental cost and incremental revenue. A managerial economist determines the worthwhileness of a decision based on the criteria that the incremental revenue exceed the incremental cost.
therefore gain from a decision = incremental cost - incremental revenue
What is incrementalism also known as?
Incremental reasoning
What is incremental cost? incremental revenue?
It is the change in total cost resulting from a decision.
(For revenue change cost»_space; revenue)
Principle of time perspective?
time plays a decisive role, particularly in pricing.
A decision should only be taken after studying the short run and long run effects on cost and revenue.
How are the four market forms based on time created by Alfred Marshall?
Very short period
short period
long period
secular period.
Principle of discounting?
The money in hand today is worth more than the money in hand tomorrow. Money has time value. Value of money depreciates with time. That is why companies invest without taking the uncertain money into account for future profitability.
Alternate name for Equi marginal Principle
Principle of maximum satisfaction.
Role of functions of a managerial economist?
1) STUDIES BUSINESS ENVIRONMENT: He studies the business environment including various factors of macro and micro economics and update the management regarding these.
2) ANALYSE INTERNAL FACTORS: He provides advice to managers for formulating internal operations of the business.
3) Demand Forecasting and estimation: Predict future trends to achieve profitability and growth. They study both internal and external operations to predict future uncertainties.
4) Performing investment Analysis : Analyzes and chooses most appropriate investment opportunities.
5) Risk analysis: Analyze risk in business operation to warn in advance.
6) Pricing: They help in price setting (right price) to beat competition
7)Product Planning: Studying consumer data and tastes to design and improve commdities.
8) Profit Planning: Make profit and decide what to do with it.
9)Strategic planning: Beat the competition
10) Collection of Data: Rival products, demand change sales trend
11)Market Research
12) Advice
Responsibility of a managerial economist?
Understand objectives of business
Increase profit reasonably
Make accurate forecasts and alert the management if the forecast is incorrect
Asses internal and external forces that affect business
Maintain contact with individual and data sources
Provide economic information to management (Audit and fraud)
Prepare speeches for executives
Earn full status in the business team.
Read decision making from text
Pg 21
Steps in decision making?
1)Analyze and define the problem or opportunity
2)Determine the objectives
3)Develop alternatives
4) Evaluate alternatives
5) Choose the best alternative
6) implement the chosen alternative
7) evaluate the result
